Due diligence in M&A operations: understand what the importance is for buying and selling companies

Due diligence is an absolutely indispensable market practice in merger, acquisition, spin-off, or incorporation processes, as it allows, with total transparency, to know in depth the real situation of the company in question, the advantages and risks associated with a possible decision. It is an essential audit process to re-evaluate the transaction of purchase, sale and corporate reorganizations, through the analysis of the target company’s strengths and weaknesses. 

This audit is also responsible for reviewing the practices and routines of the audited company in the tax, financial, social security, environmental, labor, accounting areas, among all other areas.

The role of the lawyer in due diligence 

At the same time that the audit is carried out, the legal area takes care of the processes already materialized by the company, that is, the processes in progress in the different courts of Justice and in the respective instances, classifying them according to the chances of loss or gain. into three categories: probable, possible and remote.  

The lawyers analyze the work of auditors to, as they do with processes, separate identified contingencies according to the risk of materializing in the future. Generally, the areas that most present problems or possible obstacles are fiscal, labor and social security areas. 

In the case of foreign investors interested in establishing themselves in Brazil, through a merger or acquisition, the role of the Brazilian lawyer is imperative, considering the distinctive laws and rules of national jurisprudence, which are obviously unfamiliar to buyers from other countries. The national lawyers are naturally qualified to work in Brazilian jurisdiction and are able to, in partnership with the legal department of the interested company, debate and assess the feasibility or otherwise of continuing the operation. 

 

Data security in due diligence   

To ensure the security of the audit process, it is essential that the vendor establish a virtual data room – a virtual room to securely store confidential documents – to facilitate and protect the sharing and management of data and files, especially confidential ones. 

In this scenario, it is essential to work with a team of experts who master the different areas of expertise required for the due diligence process, ensuring that all information will be evaluated safely, making the process more assertive and comfortable for those involved. 

Every due diligence process must follow strict compliance with the compliance rules imposed by the General Data Protection Law, sanctioned by the Brazilian Senate in 2018.  

The LGPD, which is similar to the GDPR (General Data Protection Regulation), an European Union law for data protection, has made the handling and storage of data by companies more rigorous once the purchase and sale processes have started. For this same purpose, the way in which the target company treats its customers’ personal data is also the focus of the audit, as are other areas and a fundamental part of decision-making on closing the deal. This is because non-compliance with the rules can result in fines and sanctions for the purchasing company.  

It should also be noted that, as it is a general analysis of the company, due diligence covers all areas of a business structure. In this way, the audit process becomes relevant for compliance, as the acquiring company will have full knowledge of the regularity of the target company, being able to assess whether it is in compliance with the compliance rules of each area. 

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